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Nathanael Greene’s Blog

Study shows tax payers subsidizing ethanol at $4.18 per gallon

Nathanael Greene

Posted March 10, 2010 in Moving Beyond Oil, Solving Global Warming

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A new study by University of Missouri Food and Agricultural Policy Research Institute (PDF) reveals that the current corn ethanol tax credit is effectively costing tax payers $4.18 per gallon and is driving up grain prices. The study estimates that the tax credit, which would cost about $5.85 billion next year if extended, will lead to 1.4 billion gallons above the 12.6 billion gallons required by law through the Renewable Fuel Standard (see page 64).

In other words, next year the oil companies will be required to buy 12.6 billion gallons of conventional corn ethanol, but because tax payers are giving them $5.85 billion they'll consume 1.4 billion more than required. That works out to $4.18 per extra gallon.

As I've written before, having the tax credit on top of the RFS is like paying drivers to obey the speed limit. (Tip of the hat to Rapier for the analogy.) Some in the industry may be inclined to point to the additional 1.5 billion gallons as a justification for the tax credit, but the price tag should make that argument just silly. Taxpayers have been subsidizing the corn ethanol industry far too long at the expense of developing cleaner, more renewable biofuels.

Plus the FAPRI study also points out that the tax credit is leading to higher prices for corn and other grains--$0.18 per bushel of corn, $0.28 for soy, and $0.15 for wheat. And lest anyone argue that the tax credit is a good way of supporting farmer income, think about this: if we gave farmers an extra $0.15, $0.28, and $015 per bushel for every single one of the corn, soy, and wheat bushels they'll grow next year, it would cost just $3.56 billion. And we'd still have enough of the tax credit money left over to subsidies the extra 1.4 billion gallons to the tune of $1.64.

The FAPRI study's analysis of how the tax credit effects commodity crop prices also confirms the underlying economic truth of indirect land-use change. Higher prices for commodities mean that farmers here in the US and around the world will want to grow more. In those parts of the world where its cheaper to increase production by bringing new land into cultivation than increasing yields on existing lands, that's going to lead to land-use change. Not surprisingly, EPA's analysis, which uses the FAPRI model, finds that the emissions from this land-use change is one of the largest sources of emissions associated with corn ethanol.

Yesterday, Growth Energy had the audacity to argue that the tax credit lowers the price of gasoline. It's a cynical, shell-game claim, meant to earn support from drivers who are actually subsidizing this well established industry every April 15.

The simple fact of the matter is the current corn ethanol tax credit is a huge waste of money. We don't need an additional 1.4 billion gallons of corn ethanol, or the higher prices for grains and more deforestation that come with it. And we sure as heck don't need to be spending $4.18 per gallon to get it. The corn ethanol tax credit (and the biodiesel tax credit too) needs to end!

We have to be smarter about how we use our tax dollars. NRDC has proposed a greener biofuel tax credit that encourage competition among the technologies and only pay for real performance. It's time to transition from corn ethanol's pollution and pork to a new generation of more sustainable biofuels that brings us closer to real energy independence.

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Comments

Charlie PetersMar 10 2010 05:36 PM

California is reporting 2000 gal of water to grow corn for 1 gal of fuel ethanol.

* * * Is CA using over 100 gal of water to go 1 mile on fuel ethanol?

* * * Stop using food and water in my gas tank.

* * Clean Air Performance Professionals 510.537.1796

PA EnergyMar 11 2010 07:32 AM

There is no scientific consensus that ethanol reduces greenhouse gas emissions. There are no commercially viable next-generation biofuels. To meet government mandates it will be corn ethanol. More corn ethanol increases the dead zones in the Chesapeake and the Gulf of Mexico. This is, of course, in direct conflict with President Obama's recent Chesapeake Bay Protection and Restoration Executive Order.

Dav GarMar 11 2010 08:49 AM

Wow!! Talk about twisting the facts. This story was obviously written by someone who knows nothing about agriculture or the ethanol industry. This tax credit is the best investment tax payers and the govt can make, a 3 to 1 return every year on your money. I'm talking about the millions of jobs this industry has created and the income tax these folks pay. Don't ever believe that ethanol is costing you money because it is not, in fact, it is probably saving your life. Before ethanol showed up, the oil companies were putting a toxic, poisonous, cancer-causing additive to the gas called MTBE to help the fuel burn more completely, luckily, ethanol has taken its place. Lets get one other thing straight here too, the oil companies are the recipients of the .45 tax credit, not the ethanol producers. The oil companies have control of distribution and the tax credit is their incentive to use it. They don't like putting their competitors fuel in with their own but they will for a price. Ethanol is a good thing, its good for agriculture, its good for jobs everywhere is this country, and its good for taxpayers and their health. No matter how good something is, there will always be people like Nathaneal Greene trying to knock it down.

S KMar 11 2010 09:34 AM

I just read a couple of articles prior to this about ethanol. The first stated that ethanol was 66 cents per gallon cheaper than gasoline right now. Then add the 45 cent subsidy making it $1.11 cheaper than gasoline. 12 billion gallons will be used in 2010. That mean that the US consumer is going to save 13.32 billion at the pump. I would say that is a better investment than most government programs. That doesn't take into account the tax revenue and lack of unemployment payments the industry generates.
The other article I read included statements from OPEC about how the amount of ethanol in the fuel supply was decreasing the demand for their oil. WOW! Isn't that the goal. Be an American Mr. Greene and support your ccountry.

Brooke ColemanMar 11 2010 10:20 AM

I responded to Nathanael's last post about subsidies by making the point that you can support or skewer a subsidy by simply changing the lens of analysis. This is the classic case. Average the subsidy not over the actual gallons that the subsidy is derived from, but the gallons in excess of the mandate, which by the way, are forecasted by the same author (i.e. have not happened). Then fling the high number around. Good grief. At some point maybe a productive conversation will emerge about subsidies. This wont help.

JDMar 11 2010 11:13 AM

I do not read any of the comments so far to contradict the conclusions of the FAPRI study with better or different facts. (Perhaps SK could point readers to the articles supporting the conclusions mentioned.) Mr. Coleman would prefer that we view those conclusions and the study's underlying facts through a different "lens," but I also see with a Google search that he is the executive director of a corporate alliance of ethanol and biofuels corporations. That self-serving, sleight-of-hand argument is not very persuasive to taxpayers and consumers forced to pay higher taxes and higher prices at the grocery store to subsidize big corporations. I thought the author's post was part of a productive conversation, and the ethanol industry can surely participate in that conversation with countervailing facts of its own -- rather than just rhetoric and attacks on people interested in facts that may be inconvenient.

PA EnergyMar 11 2010 12:06 PM

To SK

Wrapping ethanol greed in an American flag is disturbing. Ethanol is not going to stop terrorism but it will line the pockets of the greedy with our tax dollars while pretending to be good for the environment. All oil export countries are not our enemies. Isn’t Canada our largest supplier of foreign oil? Oh yeah, those Canadians are scary.

Brooke ColemanMar 11 2010 12:08 PM

JD:

Let's have an honest conversation. First, if you want to play the personal agenda game, publish your name and stop hiding. Second, the counter veiling facts are all over the web. If you look at the subsidy through the lens of reducing oil dependence (as OPEC just acknowledged today), then the numbers make sense. If you look at the subsidy through the lens of job creation, it is quite easy to make a strong argument for them. The ethanol subsidy does less well through a climate lens based on corn ethanol, but much better with cellulosic ethanol (which many of our members are working on); of course, most of the fuels that beat ethanol through the climate lens are not here yet (but I agree with Nathanael that we need to leverage them). Stop googling me and start googling the issue.

My point was that averaging the subsidy over only the excess ethanol forecasted is silly. The subsidy is per unit of fuel. It's your classic straw man argument.

And be serious on the food issue. The only big corporation being subsidized at the grocery store was Big Food; we dedicated an entire website to Big Food profiteering at www.foodpricetruth.org

Harrison PettitMar 11 2010 12:28 PM

Commodity prices have been modestly higher on average for the last few years. Is there actual evidence of significant new ground being put into production around the world in response? In the US you are clearly seeing an acceleration in yield advances that can be transferred to other regions. Again, the rush to anoint indirect land use effects as truth based on theory and conjecture. Lets have an honest discussion about what is really happening on the ground (no pun intended) in response to market forces and what that portends for the future.

Mitch MillerMar 11 2010 01:47 PM

Mr. Greene's math is intentionally misleading! The blender credit has been used to build the blending infrastructure in the US and has been a critical component in our nations goal to reduce the transfer of US wealth due to importing oil. The US ethanol industry is now displaced nearly 10% of our gasoline consumption. At the same time it has created 500,000 plus jobs for Americans and raised the income level for agriculture around the world.
As for land use change, all energy production causes land use change in some form or another. Canada is the number one importer of oil to the US and this oil is coming from the tar sands. Land use change or not? How about pollution? For all the critics I'd just like to ask what are you doing to create jobs and move our economy forward? The ethanol industry is working hard to do that every day!

SSMar 11 2010 02:31 PM

This could quite possibly be the worst argument against the Federal Excise Tax Credit I have ever seen. Your point of view is clearly not based on fact, it's based on who ever is funding your efforts. It's shocking to see what the press will (or won't) defend.

Nathanael GreeneMar 11 2010 02:37 PM

Thanks to you all for joining the conversation. It's great to know that someone reads my blog.

On some of the substantive points that folks have raised, I'd urge folks not to over simplify NRDC's position on biofuels. We're not anti-ethanol, in fact we believe that low-carbon liquid fuels are almost certainly essential to stopping global warming. But we certainly are anti-GHG emissions, water pollution, wildlife habitat destruction, etc. And I hope we all are. The bottom line message of my post is that we need to use our tax credits in much smarter ways to get the benefits of biofuels without the costs.

To those of you that would defend the current tax credit while we have the RFS mandate, please explain to me why this is not redundant? At least one of you have acknowledged that the tax credit value almost exclusively goes to the oil companies, who BY LAW have to buy over 12 billion gallons of ethanol. So why are we spending $5.85 billion to get just a few extra gallons? Do you really want to defend this give away to the oil companies?

If we can get to agreement on the idea that having the current tax credit in addition to the RFS is wasteful, then we can start to have a productive discussion, as my friend Brooke urges us to, about better ways to get better biofuels.

Geoff CooperMar 11 2010 02:38 PM

Wow. Did we read the same FAPRI analysis!? The obvious take-away from the FAPRI report is that while the Renewable Fuels Standard and tax credit are complementary policies, they serve distinctly different functions.

The RFS requires the United States to USE biofuels—it does not require the United States to PRODUCE those biofuels. Ethanol from Brazil or China or Canada or anywhere else can be used to meet the RFS requirement. So, what happens to ethanol imports if the tax credit lapses? You conveniently side-stepped FAPRI’s findings on ethanol import impacts. Indeed, the FAPRI analysis shows that failure to extend the tax credit would result in a dramatic and immediate increase in ethanol imports. If the tax credit is left to expire, ethanol imports would double in 2011 and would reach 3 billion gallons (equivalent to nearly 30% of 2009 U.S. production) by 2019, according to FAPRI. In every year of the FAPRI forecast, imports in the case where the tax credit is left to expire are more than double the import levels in the case where the tax credit is maintained.

The analysis clearly shows that the RFS requirements for conventional biofuels could not be satisfied with domestic production if the tax credit is allowed to lapse, and that imports would have to be used to fill the void. I don’t think that’s what Congress had in mind when it passed the Energy Independence and Security Act establishing the expanded RFS. How does trading reliance on oil imports for reliance on ethanol imports enhance our energy security? And what happens if there isn't much ethanol available for import (noticed what's happening in Brazil lately?)? Well, we import more oil instead.

Also, it is interesting to note that even under FAPRI’s baseline, mid-term RFS targets fail to be satisfied, and the shortfall is even larger if the tax credit is removed. This demonstrates that removing the tax credit reduces the incentive for investment in second generation (cellulosic) ethanol—which you claim to support.

Your use of the $4.18 per gallon figure is extremely misleading. To amortize total expenditures for the tax credit resulting from blending 12.6 billion gallons of ethanol over only 1.4 billion gallons is highly disingenuous. The tax credit creates pull demand for EVERY gallon ethanol produced--it has an aggregate effect on the marketplace. The FAPRI analysis clearly shows that if the tax credit goes away, the near-term RFS targets are only met with the help of dramatically increased imports.

Why is it audacious to state that the tax credit helps to hold gasoline prices lower than they would be otherwise? Wholesale ethanol prices are currently 50-60 cents per gallon under gasoline; the value of the tax credit takes the price spread to more than $1/gallon. So, explain to me how blending ethanol ($1.05/gallon after credit) with gasoline ($2.10/gallon) wouldn’t result in the finished product being less expensive than if the cheaper blending component (ethanol) hadn’t been available. Using Nebraska rack ethanol and gasoline prices for February, E-10 blends are 6.5 cents per gallon less expensive that conventional regular gasoline (let me know if you want me to walk through the math on that—happy to do it). In a 2008 analysis, researchers at Iowa State University found that “…growth in ethanol production has caused retail gasoline prices to be $0.29 to $0.40 per gallon lower than would otherwise have been the case.” That growth in ethanol production simply wouldn’t have occurred without the presence of the tax credit. How do these savings figure into your back-of-the-envelope calculations??

Your use of the FAPRI results to justify the logic of indirect land use change is tenuous as well. Does the possible 4% increase in the price of corn resulting from the tax credit really motivate a farmer to convert rainforest to cropland?! It isn’t uncommon for corn futures prices to move 4% higher or lower in one day. Does a Brazilian farmer stand in the rainforest with a chainsaw in one hand and a blackberry streaming CBOT corn prices in the other?? As demonstrated by the FAPRI analysis export numbers if anything would exacerbate land conversion in Brazil it would be discontinuation of the tax credit. Allowing the tax credit to expire would send a loud and clear signal to our competitors in the global marketplace to ramp up their production and exports. Think of the potential land use consequences of that! An indirect consequence of allowing the tax credit to lapse could be rapid expansion of sugar cane acreage in Brazil and India (or corn acres in China and Argentina) as those countries race to increase their ethanol production to take advantage of the gaping hole that would be left in the U.S. market if the tax credit expires.

Geoff Cooper
RFA

Dav GarMar 11 2010 03:26 PM

Thank You!! Geoff Cooper, very nicely put. It would be sad to see ethanol imported from Brazil, which uses slave labor to harvest its sugarcane, when we have worked so hard and long to build such a great industry here in America that benefits everyone.

Thanks again.

Brooke ColemanMar 11 2010 07:53 PM

Nathanael,

Thanks for the comment. But I don't understand the policy principle involved. If energies are mandated, they should not receive subsidies? So there are RPS programs all over the country, so we don't need subsidies for renewables like wind and solar anymore to make them a reality? Is this apparently principled stand, as a precondition for a more productive conversation about subsidies, really principled? Or is it principled in the case of a fuel you don't like?

You have created a nice discussion here. Above all else, I would be very interested in your response to Geoff Cooper.

Robert MichaelMar 12 2010 01:25 AM

What an incredibly stupid way to think about things. First of all, many consumers CHOOSE ethanol. I would buy all ethanol if it were more readily available. The money stays right here in the U.S. The study is flawed if it thinks ethanol is driving up grain prices. The large crop has driven the price DOWN. I swear, people will twist anything to try to make their side come out, this is why science is so mistrusted these days.

Nathanael GreeneMar 12 2010 01:30 PM

Geoff, you're looking at the wrong table. You need to look at the "changes relative to the baseline table" at the bottom part of page 65. There is increased imports, but it doesn't even reach a billion gallons and it starts and ends at less than 400 million gallons. This in a domestic market that reaches almost 19 billion gallons by 2019. So in 2019, we should spend $7.2 billion (that's what a VEETC extension would cost in that year alone!) to keep out 377 million gallons?

I'm a big fan of policies to encourage domestic manufacturing of clean energy technologies. NRDC is part of the Blue-Green Alliance. But this has got to be the most inefficient way to support domestic industry. Why continue to defend the tax credit-tariff kludge, which just opens the biofuels industry to protectionist attacks, when we could take the tax credit away from the oil industry, give it to the biofuels industry, make it pay for actual environmental benefits, and in doing so make it a WTO green-box payment. You want to be protectionist, at least be smart about it.

Why are you protecting giving tax payer money to the oil industry to buy fuels that BY LAW they have to buy? You say that the tax credit provides a demand pull for every gallon, but that's just not true. We pay for every gallon, but the RFS mandates the use of the vast majority of those gallons (90% next year!). I just don't get why you're trying to line the oil industry's pockets at the tax payers expense for so little benefit for the industry you're supposed to be fighting for.

And yes, trying to sell drivers on a savings at the pump and then sticking it to them in their tax bill is audacious. Especially when you're just protecting the oil company profits.

We can agree to disagree about the pros and cons of the corn ethanol industry as it exists today and still agree that we're not getting much above and beyond the RFS--not in terms of gallons or domestic production and certainly not in terms of environmental performance--and we're paying a huge price for it.

And to Brooke's question, you better believe that if we get a Renewable Electric Standard, NRDC is going to be looking for the best ways to drive the market to provide even more low-carbon electricity, more environmental benefits.

We have to be smarter about our tax credits and get more for them. Now that we have the RFS, the corn ethanol tax credit is a huge waste. Fortunately that makes doing something smarter a little easier.

Russ FinleyMar 12 2010 01:45 PM

Real nice article, Nathanael

Nice enough to get the attention of some corn-ethanol lobby group to encourage people on their email list to descend on your blog to bury you with powerful counter-arguments like:


"Be an American Mr. Greene and support your ccountry...

I'd just like to ask what are you doing to create jobs and move our economy forward? The ethanol industry is working hard to do that every day!...

What an incredibly stupid way to think about things...

This could quite possibly be the worst argument against the Federal Excise Tax Credit I have ever seen. Your point of view is clearly not based on fact, it's based on who ever is funding your efforts...

Wow!! Talk about twisting the facts. This story was obviously written by someone who knows nothing about agriculture or the ethanol industry..."

Etc, etc.

Watched the movie "Idiocracy" the other day. Kept experiencing feelings of Déjà vu. Farmers had been convinced by a powerful lobby's propaganda mill to use Gatorade for irrigation ; )

Geoff CooperMar 12 2010 02:58 PM

I can assure you I am not looking at the "wrong table" regarding exports. I've been reading FAPRI's baseline books for the last 8 or so years. I think the problem is you are misreading the results. The lower half of page 65 reflects the net CHANGE versus the baseline case. If you take FAPRI's ethanol baseline (page 39) and set it side by side with the "no tax credit/tariff (NTC/T)" sensitivity case results on page 65, this is what you find:

*Net imports in 2011 are 370 mg in the base case. Net imports are 727 mg in the NTC/T case. The difference is shown in the lower half of page 65 (357 mgy). So, basic arithmetic tells you imports double in the NTC/T case over the base case.

*Net imports more than double in 2012 (385 mg with the TC/T and 820 mg in the NTC/T case).

*Net imports are more than double again in 2013 (457 with TC/T, 1085 withough TC/T).

*So on and so forth...

If you look at the 2011/12 base case, you'll see that corn ethanol production is 13.2 billion gallons. If you use the 2010/11 and 2011/12 corn ethanol figures to derive a CALENDAR YEAR 2011 total, you get 12.76 billion gallons. FAPRI also expects an additional 287 mg of non-corn conventional for CY 2011 (probably sorghum based). So you have total U.S. "conventional biofuel" production of 13 bg in CY 2011. The 2011 RFS for conventional biofuel is 12.6 bg, so FAPRI expects U.S. production to be just slightly above RFS requirements in 2011 in the base case with the tax credit.

Now, take the tax credit away and look what happens in 2011. Corn ethanol production drops to 11.9 bg and other conventional is 270 mg, so you have total conventional of 12.17 bg. In other words, you fall short of meeting the RFS for conventional biofuels with U.S. ethanol. So, naturally, imports ramp up to fill the void.

The bottom line is we don't meet the RFS targets with U.S. biofuels in the NTC/T case and the shortfalls become rather large. You say that the tax credit simply incents production above and beyond RFS targets--this example I just gave for 2011 shows that isn't true.

Just because there is an RFS requiring the USE of ethanol doesn't mean that it will always be PRODUCED. Economics will still play a large role in this. If oil prices fall back to $20-40 (not likely, but not impossible), profit margins evaporate and some plants stop producing--with or without the RFS. If a plant can't make enough margin to keep the doors open, an RFS doesn't matter. The tax credit helps by providing a safety net in those times of low oil prices.

That's why the RFS and tax credit are complementary--not duplicative--measures.

Brooke ColemanMar 12 2010 03:39 PM

Nathanael,

I feel like this thread makes the case that we need a comprehensive and productive conversation (without unproductive and blustery preconditions such as all parties call the current scheme wasteful). That precondition is unproductive because while the biofuels industry does not want to line the oil industry pockets to blend, the fact that the government does have this policy trickles down to the value of the offtake agreements, which in turn trickles into credit lines and business viability. So while you sit there and call it duplicative (or wasteful) on purely policy grounds, there are very real impacts to the viability of these companies in the marketplace. We need to stop accusing the companies of being scoundrels for holding closely all of the market benefits they have and recognize instead that there is value there that may be better articulated through a new program. I agree that moving the incentive directly to the producer would be better, but we need a plan to get that done. Flinging the $4.18 silly math number at biofuels is only going to split the parties farther apart.

While I dont agree with your reading of the FAPRI report and would like to see your discussion with Geoff settled, I appreciate your honesty about NRDC's position on the RPS. You said you support incentives for renewables even though they are mandated. So it's not the principle of the mandate making incentives unnecessary that you are after, but instead a change in how we value subsidies. That's a good conversation to have, in my opinion, but I dont think everyone should have to swallow this value shift as a precondition of having the conversation.

And finally, i dont think we can do this piecemeal. As long as oil companies dont pay basic categories of taxes, everyone that competes with them will want to hold tightly to everything they have.

Nathanael GreeneMar 12 2010 04:06 PM

Geoff, you're kidding, right? You're just recalculating the net change table. Our net imports are small and doubling them doesn't make them big. Similarly the fact that domestic production declines below the RFS levels doesn't change the fact that it's not declining by very much (1.4 billion gallons). There's just no way you can cut the numbers that shows we're making good use of this huge amount of money. Whether it's a safety net, domestic manufacturing, or greater environmental benefits, we can get more and pay less. But with 75 cents of every dollar we spend on renewables going to corn ethanol through the VEETC, we're not going to get there unless we ditch the current tax credit.

I detect a ray of hope in Brooke's last comment and particularly the acknowledgment that we might be able to better get at our goals through a "new program." Amen.

Geoff CooperMar 12 2010 04:18 PM

You're moving the goal posts again. You originally said "The study estimates that the tax credit...will lead to 1.4 billion gallons above the 12.6 billion gallons required by law through the Renewable Fuel Standard."

Now you're agreeing with me that the study shows "...domestic production declines below the RFS levels..." in 2011.

Which is it?

Nathanael GreeneMar 12 2010 04:50 PM

Those two statements aren't even close to being in conflict. Domestic production declines below the RFS, but total doesn't.

Look, if you're reason for clinging to the VEETC is just to protect domestic production, fine, but don't try to play with the numbers to make it sound like there's a big volume of fuel at stake. The net gallons (domestic, imported, total) impacted by the VEETC is very small and comes at a huge cost. Domestic manufacturing is an honorable goal, but let's stop pretending that the VEETC is a smart or cost-effective way to get it.

Russ FinleyMar 12 2010 05:16 PM

It is a lobbyist's job to cobble together excuses to protect his and his client's income stream. This is nothing but a classic case of corporate welfare and pork politics with all of the usual excuses and distortions that always accompany such things.

".. The RFS requires the United States to USE biofuels—it does not require the United States to PRODUCE those biofuels.... Ethanol from Brazil or China or Canada or anywhere else can be used to meet the RFS requirement. So, what happens to ethanol imports if the tax credit lapses? ... failure to extend the tax credit would result in a dramatic and immediate increase in ethanol imports. .."

Imports would increase because of government mandated use of ethanol, but at least American consumers would be better off by having cheaper fuel. The goal of free markets is to provide the best price to consumers by letting entrepreneurs fight for market share using innovation to drive prices down--not to line the pockets of business owners. In theory, the tax credit was meant to be a temporary assist to help get our biofuels industry on its feet, not a permanent form of welfare for a failed business model that can't compete (which is what it has obviously become, as predicted by all involved). We could just as well subsidize our car industry while simultaneously apply a tariff to car imports.

".. How does trading reliance on oil imports for reliance on ethanol imports enhance our energy security? .."

It doesn't. Do you honestly believe that congress intended these subsidies to be a permanent solution to keep imports out? They could have made it a requirement for the "United States to PRODUCE those biofuels." But as you pointed out above, they didn't do that. And let's be honest, plans to export corn ethanol were being kicked about during the surge in Brazilian ethanol prices. This is all about money, not patriotism. The biodiesel lobby was exporting most of their product by undercutting competitors with their dollar per gallon subsidy before they got cut off at the knees by European tariffs.

".. And what happens if there isn't much ethanol available for import (noticed what's happening in Brazil lately?)? Well, we import more oil instead. .."

What happened in Brazil (a shortage of ethanol caused by weather induced crop failure and sky high food prices--sugar is a food) will eventually happen here as well, because we also can't control weather, and when it happens, well, we import more oil instead (if it is cheaper than foreign sources of ethanol at that time).

".. This demonstrates that removing the tax credit [that was never meant to be permanent] reduces the incentive for investment in second generation (cellulosic) ethanol—which you claim to support. .."

As an ethanol lobby front group, the RFA pretends to support cellulosic but in reality would lobby against it should it ever show any sign of actually competing with corn ethanol. Corn ethanol knows it has nothing to fear in the foreseeable future. For example, Range fuels has decided to produce methanol instead of cellulosic ethanol:

http://i-r-squared.blogspot.com/2010/02/broken-promises-from-range-fuels.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+R-squared+%28R-Squared%29

".. explain to me how blending ethanol ($1.05/gallon after credit) with gasoline ($2.10/gallon) wouldn’t result in the finished product being less expensive .."

Better yet, let me explain to you why a 16% price spread between E85 and gasoline makes E85 more expensive.

Your gas mileage drops about 27%. 27-16= 11% more expensive.

Now add the hidden cost, the cost a consumer would pay at the pump if the blender had to pass on the credit he gets from you the taxpayer to blend the ethanol, which would be about $6 to fill up an SUV tank with E85. Add that $6 to the $4 from the 11% loss from lower gas mileage and you see consumers paying about ten extra dollars to fill up a 15 gallon SUV with E85 as of today's retail prices (let me know if you want me to walk through the math on that—happy to do it).

".. Does the possible 4% increase in the price of corn resulting from the tax credit really motivate a farmer to convert rainforest to cropland?!... Does a Brazilian farmer stand in the rainforest with a chainsaw in one hand and a blackberry streaming CBOT corn prices in the other?? .."

No, but the fact that the price of corn has roughly doubled (from about $2 a bushel to about $4) since the renewable fuels legislation was put in place certainly would motivate him.

2004 = $2.06/bushel
2005= $2.00/bushel (original legislation)
2006= $3.04/bushel
2007= $4.20/bushel (additional legislation)
2008= $4.06/bushel
2009= $3.70/bushel

But it is more complicated than that, isn't it? For example, lets say there is an increase in the demand for soy but soy acreage is limited by competition for cheap land by corn acreage. The price of soy would go up motivating plantings around the world.

".. That growth in ethanol production simply wouldn’t have occurred without the presence of the tax credit. .."

Right again. Which would have been a good thing for tax payers and especially the environment. Farmers are businessmen and don't deserve welfare anymore than any other business.

".. numbers if anything would exacerbate land conversion in Brazil it would be discontinuation of the tax credit. Allowing the tax credit to expire would send a loud and clear signal to our competitors in the global marketplace to ramp up their production and exports. .."

The problem is that our government is forcing this fuel down its own citizen's throats via mandated use after making them subsidize it and pay more at the pump for it. Clearly if our government is willing and able to force its citizens to use a specific fuel, and to protect lobbyists with both an ethanol import tariff on top of a domestic ethanol tax credit, then dropping those "temporary protections" would flood our market with more affordable biofuel.

It would also drop the price of corn back to historic levels reducing the incentive to plant more of it, good for the environment and good for the billion or so starving poor.

In theory, dropping the subsidy would cut global land used for ethanol in half because cane ethanol produces roughly twice as much per acre as corn.

Mitch MillerMar 13 2010 08:21 AM

Mr. Greene,

We are still waiting for your response to Mr. Cooper.

Ron SteenblikMar 13 2010 08:28 AM

Excellent article, Nathanael, and sorry to see that you have been bombarded by posts by people trying to defend the VEETC. The misinformation contained in some of those posts is breathtaking.

First, though, the approach you have taken to measure the per-gallon incremental cost of the VEETC on top of a blenders' mandate is correct. This is standard economic analysis, and separate from the question of whether such a high rate of subsidy can be justified. If anything, though, your analysis understates the marginal cost, because the FAPRI analysis simulates the elimination of the ethanol import tariff, as well as the biofuel tax credits, and all you are talking about is the elimination of the tax credit, which probably would have an even smaller effect on production levels.

Second, you have tried to defend yourself in part by referring to your enthusiasm for biofuels. That should not be necessary. Whether you are a biofuel skeptic of enthusiast should not matter. What should matter is the logic of your argument, which is sound.

Geoff Cooper's posts seem to imply that the VEETC is there to prevent imports of ethanol. He should know better. The VEETC is neutral as regards imports. (If it were not, it would likely be challangeable at the WTO.) That is to say, imported ethanol benefits from the blenders' credit at the same rate as domestic ethanol. But of course, Brazilian ethanol incurs an import tariff of 2.5% of F.O.B. value plus $0.54 per gallon, so the VEETC does not fully compensate for that added cost. As for imports from Canada, that country is a high-cost producer of ethanol, and is unlikely to be a big threat to Midwestern suppliers, even though its imports can enter duty free under NAFTA.

Mr. Cooper also cites import figures from the FAPRI analysis that show higher import demand without the VEETC and tariff, and growing import demand over time. What he does not mention is that imports of fuel ethanol in 2006 (before the "loophole" that allowed importers to draw back the import duty by exporting jet fuel) were 653 million gallons, or 12% of domestic supply. The numbers that FAPRI are projecting in their "worst-case scenario" (from the standpoint of the ethanol industry) -- i.e., if both biofuel tax credits and tariffs are not extended -- would increase the share of imports to only slightly higher: 15.5%. Most of those imports would come from Brazil (hardly a security threat in the same league as some oil exporters), and be consumed on near coastal port cities.

Finally, Mr. Cooper's comments on the question of land-use effects strike me as confused. On the one hand, he questions the incentive effects of higher corn prices on decisions to convert forest land to farmland. And then, in the same paragraph, writes, "As demonstrated by the FAPRI analysis, export numbers if anything would exacerbate land conversion in Brazil it would be discontinuation of the tax credit."

In any case, Nathanael's point was not about the import tariff, but about the VEETC. Elimination of the VEETC alone, and not the tariff, would probably have little effect on import volumes -- precisely because the VEETC does not discriminate between domestic and imported ethanol.

But what I think this debate is really about (but, naturally, the industry does not want to come out and say) is U.S. ethanol exports. What exports?, you might well ask. Already, Abengoa Bioenergy is reported to have exported ethanol to Europe this year.

http://sugarcaneblog.com/2010/01/23/spains-abengoa-to-export-u-s-corn-ethanol-to-europe/

Some in the industry may be hoping that even more exports will be facilitated by the proposed, government-gauranteed, 1,800-mile dedicated ethanol pipeline, which would run from the upper Midwest to the East Coast, and would carry about 240,000 barrels of ethanol per day.

www.dtnprogressivefarmer.com/dtnag/common/link.do?symbolicName=/ag/blogs/template1&blogHandle=ethanol&blogEntryId=8a82c0bc268be2db0127539514fa09d2&showCommentsOverride=false

Note where this pipeline would terminate: on the U.S. east coast, within striking distance of Europe, where ethanol commands a higher price in the United States because of its exemption in many countries from high (up to $2.00 per gallon) excise taxes. Getting $0.45 per gallon by splashing in some gasoline before shipping the ethanol abroad could make the difference between exports and no exports.

In other words, we are perhaps seeing a plans for a repeat of the "splash and dash" trade that provided extra revenues for the U.S. biodiesel industry until the European Commission imposed countervailing and anti-dumping duties on U.S. biodiesel imports.

Of course, that trade was short-lived, and ended in tears. But this debate is not about rational, market-driven outcomes, but about what constellation of support measures an industry that is highly dependent on government support for its very existence can continue to hang onto, no matter how distorting or costly those support measures prove to be.

Ron SteenblikMar 13 2010 08:32 AM

Correction: the words between parentheses in the 5th paragraph of my previous post should read: "before the closing of the "loophole" that allowed importers to draw back the import duty by exporting jet fuel".

Dave GarMar 13 2010 10:08 AM

If this was a boxing match, I'm afraid Mr. Greene would have been knocked out in the first round by Mr. Cooper, even with Russ and Ron in his corner. I am confident our lawmakers will have the intellegence to continue to support our ethanol industry here in America and not fall for the lies that the haters on this forum would want them to believe.

I'll say it again, "No matter how much progress you are making, there will always be someone trying to stop it".

Russ FinleyMar 13 2010 10:53 AM


"..Elimination of the VEETC alone, and not the tariff, would probably have little effect on import volumes -- precisely because the VEETC does not discriminate between domestic and imported ethanol..."

Very good point, Ron. I had not considered that fact, which kills two birds with one stone: the claim that it would increase indirect land use outside of the United States and decrease energy security (as if corn ethanol has had any measurable impact in that respect).

Brooke ColemanMar 13 2010 11:25 AM

In my opinion, Ron has convoluted the point of this thread.

The first point of debate was averaging the full subsidy over only part of the ethanol volume, which obviously results in a large number ($4.18 per gallon). The rationale -- that because there is a mandate the subsidy should not be linked to those gallons -- is silly because as Nathanael acknowledges with wind and solar for the RPS, incentives can be considered to make achievement of a mandate possible (i.e. it is not correct to say that once you have a mandate of any kind, you should divorce the incentive from the mandate or render it wasteful).

So then the debate shifted to the value of VEETC. This makes sense because NRDC's critique was never about principle, but value (see above).

What I dont understand is why this isn't obvious. If the government pays your customer to blend your product, of course there is a tangible trickle down benefit to your business that you should try to keep (Ron and Russ seem to blame this on evil industry and lobbyists, but it's just business ... and the term "free market" has no place in an energy conversation, sadly).

It also seems obvious to me that without VEETC, imports will increase to fill the reduction in domestic ethanol production. Forget the amount -- it's obvious. Do 5 plants go out of business? 10? 25? These plants are the lifeblood of the economies in many rural areas. Yes, I am aware big business benefits too, but politicians are not big on closing businesses in their districts/states these days, large or small.

So there's your policy decision. Nathanael is willing to make this tradeoff to get that money out of corn ethanol (a fuel he has made clear he does not like on environmental grounds). Geoff, I am guessing, does not think this is a bright idea, based on largely economic and energy policy grounds. Personally, I agree that reading this NRDC post would not provide an accurate summary of the report, but people should read the report.

Alot of the rest is off point and a waste of space (e.g. Ron ridicules the idea that VEETC is there to prevent ethanol imports; you're right, it's there to promote domestic ethanol, which prevents ethanol imports).

Nathanael says amen to my statement that a "new program" may be better. Personally, I think we need to overhaul energy subsidies to match today's energy goals. But on VEETC, NRDC is the one asking for change right now on that one subsidy and needs to sell it. My opinion is efforts to manipulate numbers (4.18) and spin the subsidy as valueless will pit those that benefit from this particular subsidy against the change effort for little NRDC gain. That number is silly, and rejecting the idea that the subsidy has value to ethanol producers is out of touch (even if it's a far from perfect subsidy). In addition, it's quite linked to the tariff from a policy perspective. So let's stop pretending energy markets are free, drop the pre-fab billboard rhetoric, and move on.

I think the effort starts with recognizing that we dont want to go backwards on foreign fuel dependence if possible, and we should try to prevent damage to agriculture (it's not just Big Ag) if for no other reason than to create a situation in which the effort has a chance.

Ron SteenblikMar 13 2010 11:53 AM

Naturally, I think Brooke Coleman misses the point, and takes a lot of space to defend the VEETC, without actually proving that it is necessary in the presence of a blending mandate. I will not attempt to repeat the explaination that Robert Rapier has given as to why the VEETC is redundant. All that can be found on his R-squared blog:

http://i-r-squared.blogspot.com/

Rapier's essential point is: eliminate the VEETC, and ethanol prices will rise enough to clear the market.

And my point is: the VEETC, because it is non-discriminatory, does not determine the share of domestic production vs. imports: geography (Brazilian ethanol would not be competitive in the U.S. interior, even in the absence of an import tariff) and the import tariff does.

The fact that there are distortions in the energy market (and in the markets for agricultural products) seems to people like Brooke to be all the rationale one needs to justify any and all subsidies to whatever industry they favor. No, the energy market is not the ideal "free market" of economic textbooks. But market forces still operate where governments haven't decided outcomes by dictat, and indeed because of their unpredictability are one reason why government intervention often generates unintended consequences.

Russ FinleyMar 13 2010 12:06 PM


Some reading material to peruse while waiting for a response from Mr. Cooper:

From a recent paper published in the journal Science:

"...to meet the recent Declaration of the World Summit on Food Security (3) target of 70% more food by 2050, an average annual increase in production of 44 million metric tons per year is required (Fig. 1), representing a 38% increase over historical increases in production, to be sustained for 40 years. This scale of sustained increase in global food production is unprecedented..."

It's hard to see how biofuels are going to help us meet that goal.

And this from a recent article in the online version of the Times suggests that Europe is finally coming to grips with their own biofuel policies:

"...The findings show that the Department for Transport’s target for raising the level of biofuel in all fuel sold in Britain will result in millions of acres of forest being logged or burnt down and converted to plantations..."

Russ FinleyMar 13 2010 01:36 PM


I for one am very impressed by the arguments on the redundant nature of the VEETC presented by Greene, Steenblik, and Rapier.

However, before debating how many angels fit on the head of a pin one should first verify the existence of angels. There is no solid evidence that corn ethanol provides a net positive economic, environmental, or energy security gain.

The arguments in support of corn ethanol fall into four main categories:

1) It is better for the environment than gasoline.

Based on the mountains of peer-reviewed science literature that has been pouring in for the last several years, there is nary an environmental or wildlife conservation organization left that supports corn ethanol. It is worse in the aggregate than gasoline.

2) It creates jobs.

There is no evidence that job growth created by diverting tax dollars into corn ethanol instead of other industries exceeds the job destruction caused by same.

3) It increases farm income.

You can't claim that corn ethanol has not raised the price of corn while claiming it has increased the income of corn farmers. But even more importantly, why does this businessman deserve charity when my car mechanic does not?

4) It protects our economy from wild liquid fuel price swings (energy security).

Brazil recently reduced its ethanol blend because it was costing consumers too much at the pump. The high cost of the ethanol was caused by competition for the same feedstock by the food industry, which also explained the record sugar prices. This was all caused by weather induced perturbations in supply of cane.

The lesson to be learned here is that a reliance on a fuel made from a crop will in the long run increase price volatility because we have even less control over weather than we do with our oil trading partners.

Dave GarMar 13 2010 03:39 PM

Russ...I believe if your mechanic would like to have a farmers income then he should start farming, after all, theres nothing to it...just charity from taxpayers like you, right. I bet you have no problem though with the govt's cheap food policy though, I bet you have taken plenty advantage of that over the years at the expense of every farmer in this country. You speak of all the hungary people in this world, my question is what does that have to do with corn ethanol production?? The corn used in ethanol production is not used for human consumption,(wheat-- which is used for human consumption is at all-time record stocks) it is used for livestock feed. And don't tell me then that the cost of meat has gone up in the grocery store because it has went nothing but down for the last five years and I know, I am a livestock farmer.

The USDA projects we will use 4.5 billion bushels of corn for ethanol production. Thats actually a very misleading number, like the numbers used in this blog. The reason it is misleading is because 1.5 billion bushels of high-protein feed called DDG is produced thru the ethanol process and is sent back out to the livestock industry. So essentially we are only using 3.0 billion bushels of corn fully to produce 12.6 billion gallons of ethanol. At last years corn yields of 165 bu/acre that comes out to a yield of 700 gallons of ethanol per acre. These numbers will only go higher also as corn yields go up and will be very comparable to sugarcane yields. Nobody in the ethanol industry claims that ethanol is the only solution, its part of the solution. We are reducing our independence on foreign oil, we are keeping more of our enerygy dollars here in America, it has created a million good paying jobs for folks in the midwest and is cleaning up the air we breathe. Ethanol is a Net Winner for everyone, its just too bad that not everyone can understand it.

Brooke ColemanMar 13 2010 04:30 PM

Well, the inevitable has happened. The debate has been dragged away from something interesting (FAPRI, subsidies) to something old and tired: Russ and Ron's jihad against corn ethanol. But I will bite:

Worse than Gasoline
EPA says it's 21% better. Even CARB with its skewed carbon accounting says it's the same. Searchinger says it's worse, but when you assume that farms are at 100% efficiency and 100% resource utilization, shocker, you get land conversion overseas with more ethanol and big carbon penalties. Problem is, this approach has been given a dose of reality since its publishing. And noticeably, you need selectively applied price-induced carbon penalties to make corn ethanol worse than gasoline in ANY study, while assuming oil has zero price induced carbon impacts. Absurd.

Creates Jobs
This one is too obvious. The question isnt whether corn ethanol has created jobs, it's whether the subsidies create jobs at an efficient rate.

Farm Income
Of course corn ethanol increases corn prices. Corn prices have plummeted since 50 years ago, inflation adjusted, until very recently, but are still well below historic levels. The big lies about the food issue are: (1) that marginally higher corn prices actually significantly increase grocery aisle prices when corn and farming is a tiny fraction of the food dollar; (2) that people eat #2 dent corn; (3) that having $1.80/bushel corn is good for the poor, after we force it into 3rd world countries and bankrupt their local food production and incomes; (4) that starvation is a supply issue and not an allocation issue. It's truly amazing to watch self-appointed authorities profess expertise on food issues and get it completely and utterly wrong, while the oil companies and GMA throw millions into the PR campaign that keeps the debate going.

Protects Economy From Price Swings
Your reference to Brazil is misleading. It is taken as fact in Brazil that ethanol insulated Brazil from the giant summer 2008 oil price swings that contributing to our current recession. People without an axe to grind on ethanol, like Merrill Lynch, have publicly acknowledged gas price reducing characteristics of ethanol and its role as a hedge against volatility.

Look, corn ethanol has its warts like most energy sources. We need to diversify ethanol feedstocks yesterday, and that's where the money should be. But good grief on your assessment of ethanol. Please people, read up and dont believe what you see here.

Brad BardwellMar 14 2010 02:04 AM

Yes, it is inevitable that the debate will graduate toward a discussion about the effect of the subsidies. It is indeed interesting to consider the relative cost and efficacy of subsidy types and policy details. But the policy details detract from the big picture.

Even if there is a 21% reduction in carbon intensity, which is debated, does that make it good policy? Even if we get to 10% of vehicle fuel being ethanol, that is only a 2.1% reduction in carbon emissions. Degrading millions of acres of soil, massive use of polluting fertilizers and herbicides/pesticides, mining a dwindling aquafir, and diverting food to gas tanks. Don't tell me there isn't a better way to apply tax money to carbon reduction.

Another common argument posits that we need to build a biofuel industry to get a jump start on future technologies for biofuel production from non-food crops. That is speculative and again assumes it can be done without irreversibly mining our soils and water. Short term thinking.

Ron SteenblikMar 14 2010 09:33 AM

What is also inevitable is that those who are fighting to defend current ethanol-support policies immediately jump from engaging in a debate about the cost-effectiveness of those policies to ad hominem attacks on the critics as "ethanol haters", accusing them of engaging in a "jihad against corn ethanol."

While I know that Cato's Jerry Taylor has referred to corn as "America's secular religion", this debate should not be wrapped up in the flag treated as if it is about one faith or creed against another.

Certainly it is going to be hard for defenders of the VEETC and the ethanol import tariff to justify the incremental expense in GHG-abatement terms. Even if one assumes 0 net life-cyle GHG emissions from the incremental ethanol use (i.e., a 100% improvement compared with gasoline), a $4.18 per gallon incremental subsidy works out to over $1,000 per incremental tonne of CO2-eq avoided. With only a 21% reduction in life-cycle GHG, the cost per tonne of CO2-eq avoided works out as much higher even than that.

Compare that kind of number with the highest prices we have seen on the European Climate Exchange, which have never been higher than $50 per tonne of CO2-eq.

Ron SteenblikMar 14 2010 09:39 AM

Correction (I forgot to convert the subsidy to per liters from per gallon):

Even if one assumes 0 net life-cyle GHG emissions from the incremental ethanol use (i.e., a 100% improvement compared with gasoline), a $4.18 per gallon incremental subsidy works out to over $500 per incremental tonne of CO2-eq avoided. With only a 21% reduction in life-cycle GHG, the cost per tonne of CO2-eq avoided works out to over $2,000 per tonne of CO2-eq avoided.

Brooke ColemanMar 14 2010 10:58 AM

Ron,

When you drag the conversation into your anti-corn ethanol speech, based on issues unrelated to the original post, yes I am guilty of responding (because it's misleading information). I just wish you would stick to the subject.

As for looking at the subsidy through a climate lens, congratulations, you have proved my original point. Change the lens (jobs, climate, security, farms) and you can make the case for or against virtually any subsidy. Your climate lens is not really useful, because the ethanol subsidy is not a climate policy. And yes, standing up and saying "We need to subsidize corn ethanol to save te world from climate change" would be silly not because corn ethanol is worse for the climate than gasoline, but because it is only incrementally better and has existing supports.

I would be curious from other folks, what needs to be done on a comprehensive level? What does the ideal fuel subsidy program look like in this country for oil, biofuels, and the others like electricity? Not just biofuels, but are there any studies worth considering that take a comprehensive instead of piecemeal look?

Ron SteenblikMar 14 2010 12:48 PM

There you go again, Brooke, characterizing my remarks as an "anti-corn ethanol speech". Please point to what I have said against corn ethanol per se, as opposed to questioning the cost-effectiveness of current corn-ethanol support POLICIES. (If corn ethanol was not being subsidized, I could assure you I would not be wasting my breath here.) And as for diverging from the subject, everything I have written on this string relates to the topic of the original post: the VEETC.

But I thank you for your frankness in saying that "the ethanol subsidy is not a climate policy."

Russ FinleyMar 14 2010 12:49 PM

Brooke, the blog owner can let us know if he wants us to continue calculating angels per unit area of pinhead.

Dave,

".. The corn used in ethanol production is not used for human consumption ..".

If you are saying that people don't eat raw grain, I concur, so in that sense wheat is also not directly consumed by humans. But just as wheat is processed into something more palatable like flour and bread before consumption, dent corn (the same corn used for ethanol) is processed into things like corn meal, dairy, eggs, and meat. In other words, it is used for human consumption and how could a farmer not know that?

"..And don't tell me then that the cost of meat has gone up in the grocery store because it has went nothing but down for the last five years and I know, I am a livestock farmer"

You have found a correlation between increasing livestock feed prices and lower retail meat prices ...interesting.

".. that comes out to a yield of 700 gallons of ethanol per acre ...These numbers will only go higher also as corn yields go up and will be very comparable to sugarcane yields. .."

Sugarcane produces about 100% more ethanol per acre than corn (800 gallons compared to 400 gallons).

".. Nobody in the ethanol industry claims that ethanol is the only solution .."

That is what we call a strawman argument. Nobody anywhere claims that corn ethanol is the only solution. The claim is that it is not a solution.

".. We are reducing our independence on foreign oil .."

Not enough to make an appreciable or even measurable difference:

http://i-r-squared.blogspot.com/2009/10/ethanol-and-petroleum-imports.html

"...is cleaning up the air we breathe" .."

Not according to these sources:

http://www.google.com/hostednews/afp/article/ALeqM5jOOPI8QyzV1_Hf5YWbTfh9U7OLmQ
http://www.stanford.edu/group/efmh/jacobson/E85PaperEST0207.pdf

"…Due to its ozone effects, future E85 may be a greater overall public health risk than gasoline.…"

http://www.pnas.org/content/early/2009/02/02/0812835106.full.pdf

"…health costs are $469 million for gasoline and $472–$952 million for corn ethanol, with the higher totals coming from coal-fired production."

http://www.sciencedaily.com/releases/2009/12/091214101408.htm

"...would likely worsen health problems caused by ozone, compared with gasoline, especially in winter..."

".. created a million good paying jobs for folks in the midwest .."

According to this article:

http://www.cnn.com/2009/POLITICS/10/24/sotu.king.nebraska/

"To Nebraska, however, it is the direct source of roughly 1,000 jobs at ethanol production plants across the state,"

50 States times a thousand = 50,000. And any time you use tax dollars to make work, you have diverted money that would have been used elsewhere--for no net gain.

The money wasted on corn ethanol (subsidies + lower gas mileage + higher food prices) could have been paid directly to those people to sit on their couches and drink beer.

If government handouts = jobs, we should be handing out more money, which ironically is exactly what the stimulus package is doing, but that is a temporary last ditch effort to prop up the economy using borrowed money.

Corn ethanol support using borrowed money appears to be permanent and is also helping to fuel our children's debt.

".. Ethanol is a Net Winner for everyone, its just too bad that not everyone can understand it."

Or is corn ethanol is a Net Loser for everyone but corn farmers, ethanol refiners, and the politicians who bought votes with it? It's just too bad that not everyone can understand that. ; )

Russ FinleyMar 14 2010 03:24 PM

Well, the inevitable has happened--Brooke has launched his pro-corn ethanol holy war again. But I will bite.

One of the weaknesses of using innuendo and unsubstantiated opinion in a debate is that it can be picked up (preferably with a plastic bag) by your debate partner and thrown right back at you ; )

".. EPA says it's [corn ethanol] 21% better .."

There's a measure of irony in using the EPA finding to support corn ethanol in one breath while condemning the analysis in the next one.

The EPA analysis is conservative, as a compromise to critics like yourself and it only pertains to GHG. Choosing a more realistic time frame for growth of carbon sinks would drive the 21% GHG reduction negative.

It makes no attempt to quantify costs, ozone, eutrophication of lakes, streams, and the gargantuan Gulf of Mexico dead zone or to quantify habitat and biodiversity loss or it's role in helping to make food unaffordable for the billion malnourished souls. In the aggregate, corn ethanol is worse than even gasoline. I'd be happy to provide a link to a Swedish study that did such a comparison if you will spare us the inevitable claim than all such studies are clandestinely funded by big oil.

And if you don't like the EPA analysis, you really are not going to like the European version of it:

http://www.timesonline.co.uk/tol/news/environment/article7044708.ece

"The findings show that the Department for Transport’s target for raising the level of biofuel in all fuel sold in Britain will result in millions of acres of forest being logged or burnt down and converted to plantations."

".. Of course corn ethanol increases corn prices ..".

... and the near doubling in price since the inception of mandated use is just one of those untimely gargantuan coincidences ; ):

2004 = $2.06/bushel
2005= $2.00/bushel (Energy Policy Act of 2005)
2006= $3.04/bushel
2007= $4.20/bushel (Security Act of 2007)
2008= $4.06/bushel
2009= $3.70/bushel

Plant enough corn to exceed demand and the price of corn will eventually drop. It's a catch-22 that plagues all commodity farmers and the endless attempt to buoy those prices by raiding the public larder is like trying to fill a bathtub without putting the plug in first. This is all the corn ethanol debate comes down to in the end. It's a excuse to continue funneling tax money to the agriculture industry.


".. The big lies about the food issue are: (1) that marginally higher corn prices actually significantly increase grocery aisle prices when corn and farming is a tiny fraction of the food dollar .."

I never use the world lie to describe my debate partner's motivations but I don't hesitate to point out strawman arguments when I see them. Nobody has claimed that corn prices "significantly" increase "American" grocery prices. The CBO recently calculated that corn ethanol cost Americans roughly $ one billion extra in food costs last year. Stick whatever adjective you want on that. The food issue pertains primarily to the world's poorest. They can't grow food cheaper than they can buy it and yet a billion men, women, and children go to bed hungry, and for what?


".. (2) that people eat #2 dent corn .."

From and earlier comment ...If you are saying that people don't eat raw grain, I concur, so in that sense wheat is also not directly consumed by humans. But just as wheat is processed into something more palatable like flour and bread before consumption, dent corn (the same corn used for ethanol) is processed into things like corn meal, dairy, eggs, and meat. In other words, it is used for human consumption and how could a farmer not know that?

".. (3) that having $1.80/bushel corn is good for the poor .."

First, raise your hand if you believe Brooke's assertion that the poor in the world get to pay the bulk wholesale price of $1.80/bushel after it is shipped overseas, packaged, and distributed by retailers. We don't force poor people to buy the least expensive corn available. We all shop for the best price. American corn farmers are the most productive in the world. Subsidies aside, the result is the lowest priced product.

".. after we force it into 3rd world countries and bankrupt their local food production and incomes .."

I seriously doubt that you ever lobbied your lobbyist to stop lobbying for farm subsidies when they were preventing third world countries from being able to grow corn cheaper so they could compete with us toe-to-toe. It would be comical if it were not so tragic that lobbyists now think the answer is to double the price of the grain staples they survive on. If they could grow their own food for less they would.


".. (4) that starvation is a supply issue and not an allocation issue. .."

Another strawman. Starvation is a price vs. income issue:

http://home.comcast.net/~russ676/desiremore/povertychart1.gif

If you have the answer to poverty you should share it. In the mean time, doubling the price of food staples is not likely going to do much to help the starving.

Hang on a minute while I get my plastic bag out ...It's truly amazing to watch self-appointed authorities profess expertise on food issues and get it completely and utterly wrong.

".. while the oil companies and GMA throw millions into the PR campaign that keeps the debate going ..".

And last but not least, I give you the conspiracy theory card.

Brooke ColemanMar 15 2010 10:42 AM

Russ,

I would be happy to debate you on all these issues, but we are now half a mile from the top of this thread. Set up the blog or forum and let's discuss these issues.

If there is any juice left in this thread, I am still curious if there is a subsidy reform proposal out there that is not piecemeal, and covers oil and all the major fuels (including VEETC). Perhaps Ron knows of one, as he is part of the GSI.

In the same way that adding consequential carbon emissions to the equation one fuel at a time will polarize the debate, I believe pulling at subsidy threads will not work. We need overhaul that is comprehensive and reasonable.

Randy DuttonMar 15 2010 06:18 PM

Ethanol creates thousands of new jobs - in China. Read the Outdoor Power Equipment Institute study on how devastating ethanol is to engines. www.opei.org/ht/a/GetDocumentAction/i/1926.

And small enginer repair business thank you for forcing ethanol into the fuel. Their business is up dramatically thanks to all the damage ethanol is causing that they get paid to repair (or replace).

Home Depot and other outdoor equipment suppliers also thank you for all the replacement equipment sales (even if the new equipment still can't handle ethanol).

And some states also like ethanol for raising sales tax revenue, since ethanol causes a drop in fuel mileage, you have to buy more fuel to go the same distance.

Ethanol is corrosive, significantly increases ground ozone, creates safety hazards in the use of equipment, makes fighting a fuel fire more dangerous for fire fighters, and wastes resources. It is a 1st gen fuel that many in the industry are abandoning.

Randy DuttonMar 15 2010 06:26 PM

And lest someone challenge the ozone comment, a Washington State Dept of Ecology official personally told me that any more than 2% ethanol in the fuel supply means Seattle exceeds EPA ozone attainment levels.

Geoff CooperMar 16 2010 09:31 AM

Ron,

While I'd like to respond to dozens of your feeble points here, I'll stick to just one from your original post. [Indeed, I'm quickly losing interest in this thread, as it has gone down the same rat hole that most of these do.]

My point on land use change is that it can cut both ways. If enviro NGOs are going to goad lawmakers and regulators into slapping an ad hoc penalty on crop-based biofuels for predicted, unverifiable policy-mediated land use changes that theoretically result from the RFS, then they should be looking at the potential policy-mediated land impacts of changing the tax credit as well. They should look at the potential positive and negative policy-mediated impacts of any and all energy policy decisions for that matter (and they should broaden the analysis to all fuels).

If you are going to argue that a 4% increase in corn prices is enough of a signal to incite farmers around the globe to expand cropland, then I think you need to explain why removing the tax credit (and, thus, losing more than 10% of U.S. ethanol production according to FAPRI) wouldn't also be a signal to the global marketplace to ramp up biofuel crop production and ethanol exports.

Time and time again, it seems your camp only employs the land use change argument (nay, the indirect effects argument) when it is convenient for your politics.

Geoff

Ron SteenblikMar 16 2010 02:54 PM

In answer to Brooke Coleman, whos asks: "I am still curious if there is a subsidy reform proposal out there that is not piecemeal, and covers oil and all the major fuels (including VEETC)", there have certainly been plenty of proposals from pundits: end all production- and consumption-linked subsidies to fossil fuels and biofuels (some would say for all energy forms), spend more money on R&D on alternatives to fossil fuels, and levy CO2 and pollution-related charges on pollution associated with combustion.

Does Congress work that way? No. But there are elements of that kind of solution in the works, at least, starting with the Obama Administration's proposals (in support of the G-20 initiative) to eliminate some of the tax breaks currently benefitting the production of coal, oil and gas.

In response to the less-polite Geoff, I agree that it would make an interesting exercise to see what the land-use effects would be if the VEETC and the ethanol tariff were allowed to expire. But, of course, allowing a sunsetted policy to actually sunset (what a novel idea!) is not the same as introducing a new policy: the onus should be on those asking for its extension to prove it is worth extending, not on those who would let it lapse to prove why it shouldn't.

FAPRI forecasts a decline in both the corn price (-$0.18 per bushel in 2011) and the ethanol rack price (-$0.19 per gallon in 2011) if the VEETC and the tariff expire. In the latter case, that decline would be by more than the current difference between the VEETC and the tariff ($0.09 per gallon). So I am curious as to how that lower price would send "a signal to the global marketplace to ramp up biofuel crop production and ethanol exports" to the United States. FAPRI predicts higher exports, but likely sugar-cane ethanol from Brazil, a low-cost producer. Would there be land-use (direct and indirect) changes? Probably. But larger than if the VEETC and the import tariff were to be extended? The case has not been made.

Finally, I note that neither of you two (nor Dave Gar) have addressed the supposition in my first comment: that what this is really about is protecting investment in the ethanol pipeline from import competition, and retaining the possibility of using the VEETC to subsidize exports.

Russ FinleyMar 16 2010 05:36 PM

Geoff

Nobody expects a debate partner to ever cede victory to an opponent. Debate is for the audience. They learn something from it and get to decide who's head was handed to who. Everyone expects a lawyer to defend his client right or wrong and that is essentially what the RFA is to corn ethanol. All we have are the strengths of our arguments.

Not only is the use of corn ethanol mandated by government fiat, it is protected by a tariff and the price of blending it into our gas is subsidized by the blender's credit. But that isn't enough. Corn ethanol lobbyists are now fighting to increase the blend ratio to 15%. And it isn't going to stop there. They will push to have a government funded pipeline to a coast and from there they will begin exporting it. With that much corn ethanol infrastructure in place it would become "too big to fail" assuming it isn't already.

".. While I'd like to respond to dozens of your feeble points here .."

Right ...Steenblik made "dozens" of feeble points. Feeble does not have a precise definition but it's easy enough for me to reach down and pick it up with my baggie-clad hand and toss it back as a description for your arguments.

".. Indeed, I'm quickly losing interest in this thread, .."

Indeed, and I suspect for the same reasons I would quickly lose interest playing chess against Bobby Fischer.

".. it has gone down the same rat hole that most of these do. .."

If by going down a "rat hole" you mean this debate is not going well and you are looking for an excuse to extricate yourself, I would concur--dozens of feeble points my butt ; )

".. If you are going to argue that a 4% increase in corn prices is enough of a signal to incite farmers around the globe to expand cropland, .."

Four percent? You are saying that the near doubling in price since the inception of mandated use is just one of those untimely gargantuan coincidences ; ):

2004 = $2.06/bushel
2005= $2.00/bushel (Energy Policy Act of 2005)
2006= $3.04/bushel
2007= $4.20/bushel (Security Act of 2007)
2008= $4.06/bushel
2009= $3.70/bushel

You are seriously expecting readers to believe that the farmers around the world who are replacing the literally tens of thousands of square miles of corn acreage that have been diverted from the human food chain that we are literally forced by government mandate to burn in our cars are managing to do so without displacing tens of thousands of square miles of land that was either growing other food or was intact carbon sinks.

".. then I think you need to explain why removing the tax credit (and, thus, losing more than 10% of U.S. ethanol production according to FAPRI) wouldn't also be a signal to the global marketplace to ramp up biofuel crop production and ethanol exports. .."

He already did that. Now the onus is on you to explain why anyone would increase imports if they have no economic incentive to do so. Removing the same tax credit that is applied to both imported and domestic fuels maintains the same level playing field. Removing the tariff would be a different story.

Let's start by using the actual wording in the study. You said:

".. ...losing more than 10% of U.S. ethanol production according to FAPRI .."

Page 68 of the FAPRI study said:

If the ethanol tax credit and tariff expire as scheduled on December 31, 2010, there would be less incentive to produce ethanol in excess of quantities needed to satisfy the RFS2 [emphasis mine].

Here is the graphic it refers to.

Your argument has at least three very weak links and some have been pointed out to you before. Ignoring responses won't work in an internet debate because your opponent is free to cut and paste previous responses as often as you repeat the debunked one. Ignoring responses just gives them an opportunity to emphasize it again.

1) In one breath you mock the peer reviewed science on indirect land use change while in the other try to use it to defend corn ethanol by suggesting it should be applied to all fuels--why do that if land use change is a crock as you keep insisting?

2) If removing the credit actually would stimulate imports, those imports would be cane ethanol which uses about half as much land per gallon as corn (a moot point because removing the credit does not provide an economic incentive to potential importers).

3) As pointed out before, removing the "tariff' would stimulate imports but removing the tax credit alone that is applied to both imported and domestic ethanol would do nothing to favor imports.

".. They should look at the potential positive and negative policy-mediated impacts of any and all energy policy decisions for that matter (and they should broaden the analysis to all fuels). .."

Not a bad idea but it would not help corn ethanol. Oil is pumped out of a hole in the ground.

Time and time again, it seems your camp only employs the land use change argument (nay, the indirect effects argument) when it is convenient for your politics.

Keith KuperMar 19 2010 10:46 AM

The exact cost of biofuel subsidies, tariffs and mandates is subject to endless debate so let's cut to the chase: if biofuels made economic sense they wouldn't need taxpayer-provided largesse and protection to survive.


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